New Study Identifies a Bias Against Women in Wall Street

If there's anything Wall Street has more in abundance than golden parachutes, it's glass ceilings. While women make up more than half of the workforce in the U.S. financial industry, they make up fewer than 3% of chief executives. This inequity received particular scrutiny last year when Yahoo!’s Marissa Mayer made history for being the youngest woman chief executive of a Fortune 500 company and being hired while pregnant. If progress was being made in the tech industry, why was nothing changing on Wall Street? A new study by the American Economic Association helps shed light on the discrepancies on Wall Street: connections help men but not women.

According to the study, for men it's not what you know it's who you know. Connections matter. However, the same is not true for women. Connections offer little help and women are ultimately judged by their performance.

Before you jump to any conclusions, there are some other key findings in the study. First, it's not about the number of connections a person has. Conventional wisdom says that Wall Street's boy's club gives men the connection edge. However, the study argues women actually tend to have the same number or more connections than men, but these simply don't translate into success.

Second, while men rely on connections more, the evidence suggests that the connections are also an indicator of future performance for men, but not for women. There's almost an instinctual relationship where investors trust men more despite having less or little evidence to do so, and yet this seems to correlate with better results.

In other words, men and women have two different tracks to success on Wall Street. For men, social capital can be used to build trust with an investor. For women, trust must be earned by merit. It's probably no coincidence then that women on Wall Street proportionately have more Ivy League degrees than men. Since investors judge women on performance, only the best and brightest will last in the business.

But this also helps explain some of the difficulty women have climbing up the Wall Street ladder. Young analysts have smaller or no records for which they can be judged. Young male analysts can surpass this shortcoming with their social connections to build trust with investors and potential employers. Meanwhile, young women analysts tend to be stuck waiting for a break to demonstrate their abilities. This gives young men a critical early edge over young women, which could then translate into career growth faster.

For young women analysts, getting that break is even more difficult than it sounds. Success encourages more success. When people trust your work they go to you. This translates into easier leads and better investors. But young women analysts like young male analysts start at the bottom often with smaller and more difficult clients. That means they end up working harder with less to show for it, and without more to show for it there's little chance for growth. People will take a chance on young men, but not young women.

To be fair, the study doesn't suggest that this connection bias towards men is intentional. It's argued that since men have historically dominated the industry, it may be that investors and employers have come to understand and identify success indicators for men in a way they trust better than in women who are relatively new in the industry. Maybe. But whatever reason, the results are the same: this doesn't make it any easier to be a woman on Wall Street.